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Long Shadow of the U.S. Mortgage Expansion: Evidence from Local Labour Markets

Mitra, Aruni and Wei, Mengying (2023): Long Shadow of the U.S. Mortgage Expansion: Evidence from Local Labour Markets.

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Abstract

We construct U.S. county-level credit supply shocks by interacting the mortgage growth of multi-market lenders with a county’s initial exposure to those lenders. The credit shocks did not impact the local labour markets during the credit boom but had a negative effect during the Great Recession. While local unemployment rates recovered post-Recession, wage growth remained depressed. Further, a long-run increase in older firms’ employment share suggests a credit-induced reduction in business dynamism and labour demand. A mechanism through occasionally binding financial constraints tied to house prices can qualitatively explain these asymmetric effects of credit shocks in booms and busts.

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